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Erste Group First Impression 1Q 2011

Erste Group's 1Q bottom line missed consensus by 4%. However the quality of earnings was below our expectations as on group level Erste surprised with a strong trading result while NII and F&C was slightly below expectations.

Despite positive currency effects loan volumes were still only flat qoq with strongest dynamics in SK, CZ, RO and HR (supported by currency effects) but a qoq drop in EB Austria, HU and UA. Deposit volumes however were strong (+2% qoq) with strong dynamics in CZ (+8% qoq). Net interest margins were down from 3.03% in 1Q 10 to 2.88% due to higher margin pressure in corporate lending, a still low interest rate environment and a change in asset mix (increase in interbank business and financial assets) as deposits grow faster than loans. Erste however still demonstrates strong costs control evidenced by operating costs below our forecast. Keep in mind that 1Q was the first quarter impacted by the Austrian Bank tax (EUR 35 mn pre-income tax, EUR 26 mn net) and that the yoy comparison is further distorted by Hungarian bank tax (EUR 13 mn pre-income tax, EUR 11 mn net).

The NPL ratio was only up from 7.6% in 4Q to 7.7% in 1Q, better than expected and the NPL coverage ratio improved from 60.0% to 61.4% qoq. The NPL development was especially good in SK and at EB Austria (decreasing NPL ratio) while Hungary (NPL ratio from 12.0% to 13.5%) was clearly a negative surprise driven by commercial and residential real estate projects and also in Group Corporates (where the NPL ratio was contracting in 4Q) the NPL ratio deteriorated from 5.5% to 5.8%. So risk costs were still exceeding estimates (in HU, Large Corporates and AB Austria). The development of the core tier 1 ratio (up from 9.2% to 9.4%) was in line with our estimates. From a segmental/regional perspective the main positive surprise was CZ, SK, UA and Group Markets while HU, RO, EB Austria and Group Corporates were below estimates.

The management outlook for 2011 (mid-single digit loan growth, rising interest rates to support NIM in 2H, operating costs to rise below inflation, risk costs to remain elevated in HU and RO but to drop 10-20% in other countries) remains unchanged. Based on 1Q figures and on the outlook we will most likely reduce our 2011 estimates and also consider the consensus too high. We therefore expect a slight negative market reaction today. We will adjust our TP but see a 12m TP of around EUR 40.0 still quite realistic.

Sursa: http://www.rciro.ro

Tags: ratio group costs below erste still

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